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Extended Warranties - UK - May 2011

For the purpose of this report, domestic electrical goods include a range of household appliances and audio-visual equipment. It also includes other widely-held technology such as PC equipment and mobile phones.

Most electrical goods are sold with a manufacturer’s guarantee that covers any product breakdown during the first 12 months, although some manufacturers may offer cover for an extended period.

Extended warranties generally provide cover after a manufacturer guarantee has expired, and will sometimes cover a wider range of risks than most manufacturer’s guarantees, such as providing cover for accidental damage. However, extended warranty products do vary considerably in terms of coverage and features.

There are two main types of extended warranty product.

  • Insurance-backed cover – underwritten by an insurance company and regulated by the FSA.
  • Service-backed plans – cover that is backed by the supplier of the extended warranty. With this type of product, payments are placed into a pool that is used to meet claims. Usually, this pool is protected in the event of insolvency, although this is not required by law.

Extended warranties are sometimes referred to as customer support agreements, customer service agreements, breakdown cover and replacement cover.

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Table of contents

  1. Introduction

      • Product definition
        • Abbreviations
        • Executive Summary

            • The market
              • Extended warranty market valued at more than £750 million
                • Around 12.5 million people have an extended warranty
                  • Figure 1: Extended warranty ownership, March 2011
                • Market factors
                  • A difficult economic backdrop
                    • Figure 2: UK: Inflation on major electrical goods categories, 2000-11
                  • Regulatory focus is maintained
                    • Online channels are becoming more influential
                      • Company activity
                        • Dixons Retail leads the way
                          • Most extended warranties arranged through point-of-sale retailer
                            • Figure 3: Where most recent extended warranty was purchased from, March 2011
                          • The consumer
                            • EW penetration is higher for expensive items and appliances
                              • Figure 4: Extended warranty ownership, by appliance covered, March 2011
                            • The relative cost of cover is a major issue for consumers
                              • Figure 5: Reasons to purchase an extended warranty, March 2011
                            • Product reliability undermines demand for cover
                              • Figure 6: Agreement with statements towards extended warranties, March 2011
                            • What we think
                            • Issues in the Market

                                • Has the point-of-sale advantage been eroded?
                                  • To what extent is the internet influencing consumer purchasing behaviour?
                                    • Are heavy-handed sales tactics a thing of the past?
                                      • To what extent do consumers believe that extended warranties offer value for money?
                                        • How can people be persuaded to arrange extended warranty cover?
                                        • Future Opportunities

                                          • Internal Market Environment

                                            • Key points
                                              • A decade of regulatory scrutiny – a timeline
                                                • Regulatory focus – a lack of competition and high prices
                                                  • Some sign of improvements but concerns persist
                                                    • Impact and potential consequences of regulation
                                                      • ABI tries to improve standards
                                                        • Spending on domestic electrical goods is maintained
                                                          • Figure 7: Consumer spending on selected categories of domestic electrical goods (current prices), 2006-10
                                                        • But price deflation hits the warranty market
                                                          • Figure 8: UK: inflation on major electrical goods categories, 2000-11
                                                        • Electrical appliance repair costs are rising
                                                          • Figure 9: Consumer spending on the repair of selected domestic electrical goods (current prices), 2006-10
                                                      • Broader Market Environment

                                                        • Key points
                                                          • Subdued consumer confidence undermines consumer spending
                                                            • Figure 10: Monthly UK consumer confidence index, January 1996-April 2011
                                                          • A growing number of consumers are really worried about their finances
                                                            • Figure 11: Trends in consumer sentiment for the coming year, April 2009, April 2010, April 2011
                                                          • Consumer appetite for insurance has fallen…
                                                            • Figure 12: Consumer response to statement “it is important to be well insured for everything”, 2006-10
                                                          • … and the influence of the internet is increasing
                                                            • Figure 13: Trends in agreement with selected lifestyle statements, 2006-10
                                                          • More than 50% of consumers compare electrical purchases online
                                                            • Figure 14: Consumer attitudes towards electrical retailing and the internet, March 2011
                                                        • Competitive Context

                                                            • Figure 15: Overview of extended warranty competitor products, 2011
                                                        • SWOT Analysis

                                                            • Figure 16: Strengths, weaknesses, opportunities and threats for the extended warranty market, 2011
                                                        • Who’s Innovating?

                                                          • Key points
                                                            • Domestic & General launch point of need cover
                                                              • Dixons Retail expands Whatever Happens services
                                                                • General market trends
                                                                • Market Size

                                                                  • Key points
                                                                    • Around 12.5 million adults have an extended warranty product
                                                                      • Figure 17: Extended warranty ownership, March 2011
                                                                    • Televisions top the list of products for extended warranty cover
                                                                      • Figure 18: Extended warranty ownership, by appliance covered, March 2011
                                                                    • Market worth around £750 million but it has declined over the last decade
                                                                    • Provider Share

                                                                      • Key points
                                                                        • A complex market with many third-party agreements
                                                                          • Dixons Retail is largest provider of extended warranty products
                                                                            • Figure 19: Extended warranties owned by provider and provider share of extended warranty market, March 2011
                                                                        • Companies and Products

                                                                          • Market and product structure
                                                                            • Retailers
                                                                              • Argos
                                                                                • Dixons Retail Plc
                                                                                  • Comet (Kesa Electricals)
                                                                                    • Insurers
                                                                                      • Allianz
                                                                                        • Cardif Pinnacle
                                                                                            • Figure 20: Financial performance of Pinnacle Insurance Plc, 2009-10
                                                                                          • Domestic & General
                                                                                              • Figure 21: Financial performance of Domestic & General Group Holdings Limited, 2009-10
                                                                                            • The Warranty Group (Formerly Aon Warranty Group)
                                                                                            • Channels to Market

                                                                                              • Key points
                                                                                                • Most extended warranties are arranged through retailers
                                                                                                  • Figure 22: Where most recent extended warranty was purchased from, March 2011
                                                                                                • The internet has an influence on around one in four EW sales
                                                                                                  • Figure 23: Agreement with statement “I used the internet to research or arrange the cover”, March 2011
                                                                                              • Brand Communication and Promotion

                                                                                                • Key points
                                                                                                  • Extended warranty adspend increased in 2010
                                                                                                    • Figure 24: Extended warranty adspend (home appliance white/brown goods), 2008-10
                                                                                                  • Domestic & General top list of extended warranty advertisers
                                                                                                    • Figure 25: Extended warranty adspend – top advertisers (home appliance white/brown goods), 2008-10
                                                                                                  • Direct mail is used to promote extended warranty products
                                                                                                    • Figure 26: Extended warranty adspend by media type (home appliance white/brown goods), 2008-10
                                                                                                • Extended Warranty Ownership

                                                                                                  • Key points
                                                                                                    • Note on consumer research
                                                                                                      • 12.5 million have an extended warranty product
                                                                                                        • Figure 27: Extended warranty ownership, by appliance covered, March 2011
                                                                                                        • Figure 28: Extended warranty ownership by appliance, among extended warranty holders, March 2010
                                                                                                      • EW penetration is higher for more expensive electrical goods
                                                                                                        • Figure 29: Extended warranty penetration based on electrical goods purchased and extended warranty ownership, March 2011
                                                                                                      • Multi-appliance cover for lower value electrical goods
                                                                                                        • Younger adults are more likely to have an extended warranty product
                                                                                                          • Figure 30: Extended warranty ownership, by gender and age group, March 2011
                                                                                                        • Lower-income households and families are more likely to have an EW
                                                                                                          • Figure 31: Extended warranty ownership, by socio-economic group, annual household income and children in household, March 2011
                                                                                                        • Almost half of EW holders have more than one policy/contract
                                                                                                          • Figure 32: Number of extended warranty products owned, March 2011
                                                                                                          • Figure 33: Extended warranty ownership, by repertoire of extended warranty ownership, March 2011
                                                                                                      • Purchasing Extended Warranties – Sales Channels Used

                                                                                                        • Key points
                                                                                                          • Most policies are purchased from electrical retailers…
                                                                                                            • Figure 34: Where most recent extended warranty was purchased, March 2011
                                                                                                          • … although there does appear to be an increase in shop-around activity
                                                                                                            • Distribution differs between electrical products
                                                                                                              • Figure 35: Where most recent extended warranty was purchased, by extended warranty ownership, March 2011
                                                                                                            • Multi-EW policyholders are more likely to use other channels to arrange cover
                                                                                                              • Figure 36: Where most recent extended warranty was purchased, by repertoire of extended warranty ownership, March 2011
                                                                                                          • Purchasing Extended Warranties – Behaviour and Attitudes

                                                                                                            • Key points
                                                                                                              • Majority of EW holders arrange cover when purchasing electrical goods
                                                                                                                • Figure 37: Agreement with statements about purchasing extended warranty products, March 2011
                                                                                                              • Younger adults are more likely to compare EW products
                                                                                                                • Figure 38: Agreement with statement “I compared the extended warranty/service plan I purchased to that offered by at least one other warranty provider”, by demographics, March 2011
                                                                                                              • 30% of people shopping around purchase cover from elsewhere
                                                                                                                • Figure 39: Where most recent extended warranty was purchased from by agreement with statement “I compared the extended warranty/service plan I purchased to that offered by at least one other warranty provider”, March 2011
                                                                                                              • Awareness of alternative providers
                                                                                                                • Figure 40: Awareness of available covers from other providers, March 2011
                                                                                                              • The point-of-sale advantage
                                                                                                                • Figure 41: Agreement with statement “I arranged the warranty at the same time as purchasing the electrical goods”, by demographics, March 2011
                                                                                                              • Encouraging consumers to delay EW purchase
                                                                                                                • Figure 42: Where most recent extended warranty was purchased from by agreement with statement “I arranged the warranty at the same time as purchasing the electrical goods”, March 2011
                                                                                                              • 25-34-year-olds are more likely to perceive pressurised sales tactics
                                                                                                                • Figure 43: Agreement with statement “I felt pressurised by the sales staff to take out an extended warranty”, by demographics, March 2011
                                                                                                              • Online purchasing is driven by specific demographics
                                                                                                                • Figure 44: Agreement with statement “I used the internet to research or arrange the cover”, by demographics, March 2011
                                                                                                              • Online channels encourage shop-around activity
                                                                                                                • Figure 45: Where most recent extended warranty was purchased by agreement with statement “I used the internet to research or arrange the cover”, March 2011
                                                                                                              • Purchasing intentions are higher among affluent groups
                                                                                                                • Figure 46: Agreement with statement “I had intended to take out an extended warranty/service plan before I purchased the electrical goods”, by demographics, March 2011
                                                                                                              • A considered purchase
                                                                                                                • Figure 47: Where most recent extended warranty was purchased from, by agreement with statement “I had intended to take out an extended warranty/service plan before I purchased the electrical goods”, March 2011
                                                                                                            • Extended Warranties – Motivations to Purchase

                                                                                                              • Key points
                                                                                                                • Scope to extended warranty cover
                                                                                                                  • Figure 48: Reasons to purchase an extended warranty, March 2011
                                                                                                                • Relative cost of cover is the top consideration for consumers
                                                                                                                  • Extended warranty holders focus on protection and reassurance
                                                                                                                    • A quarter would not even consider taking extended warranty cover
                                                                                                                      • Less affluent people have more practical reasons to consider taking an EW
                                                                                                                        • Older consumers are more likely to rule out taking an EW
                                                                                                                          • Figure 49: Response to statement ‘I wouldn’t consider purchasing an extended warranty product in future’, by age group, March 2011
                                                                                                                        • Purchasing motivations differ between channels
                                                                                                                          • Figure 50: Reasons to purchase an extended warranty, by where most recent extended warranty was purchased from, March 2011
                                                                                                                      • Consumer Attitudes Towards Extended Warranty Products

                                                                                                                        • Key points
                                                                                                                          • Two thirds of EW holders are pleased that they arranged cover
                                                                                                                            • Figure 51: Agreement with statements about extended warranties, March 2011
                                                                                                                          • Claims experience varies between distribution channels
                                                                                                                            • Figure 52: Agreement with statement “I have made a claim on the warranty/service plan”, by where most recent extended warranty was purchased from, March 2011
                                                                                                                          • Most consumers believe electrical goods are reliable
                                                                                                                              • Figure 53: Attitudes towards extended warranties, March 2011
                                                                                                                            • Peace of mind vs. value for money
                                                                                                                              • EW holders seek peace of mind
                                                                                                                                • Figure 54: Attitudes towards extended warranties among extended warranty holders, March 2011
                                                                                                                              • EW purchased from non-point-of-sale channels are more likely to be perceived as value for money
                                                                                                                                • Figure 55: Attitudes towards extended warranties, by where most recent extended warranty was purchased from, March 2011
                                                                                                                            • Appendix – Provider Share

                                                                                                                                • Figure 56: Leading audio-visual retailers, in-store and online, March 2011
                                                                                                                                • Figure 57: Leading large kitchen appliance retailers, in-store and online, March 2011
                                                                                                                                • Figure 58: Provider share of extended warranty market, by demographics, March 2011
                                                                                                                                • Figure 59: Provider share of extended warranty market, by demographics, March 2011 (continued)
                                                                                                                            • Appendix – Extended Warranty Ownership

                                                                                                                                • Figure 60: Extended warranty ownership, by appliance, by demographics, March 2011
                                                                                                                                • Figure 61: Extended warranty ownership, by appliance, by demographics, March 2011
                                                                                                                            • Appendix – Purchasing Extended Warranties – Sales Channels Used

                                                                                                                                • Figure 62: Where most recent extended warranty was purchased from, by demographics, March 2011
                                                                                                                            • Appendix – Extended Warranties – Motivations to Purchase

                                                                                                                                • Figure 63: Most popular reasons to purchase an extended warranty, by demographics, March 2011
                                                                                                                                • Figure 64: Other reasons to purchase an extended warranty, by demographics, March 2011
                                                                                                                            • Appendix – Consumer Attitudes Towards Extended Warranty Products

                                                                                                                                • Figure 65: Agreement with statement “On balance, I’m pleased that i arranged the extended warranty”, by demographics, March 2011
                                                                                                                                • Figure 66: Agreement with statement “I have made a claim on the warranty/service plan”, by demographics, March 2011
                                                                                                                                • Figure 67: Attitudes towards extended warranties, by demographics, March 2011
                                                                                                                                • Figure 68: Attitudes towards extended warranties, by demographics March 2011 (continued)
                                                                                                                                • Figure 69: Attitudes towards extended warranties, by demographics, March 2011 (continued)
                                                                                                                                • Figure 70: Attitudes towards extended warranties, by demographics, March 2011 (continued)

                                                                                                                            Companies Covered

                                                                                                                            • Allianz Cornhill Insurance plc
                                                                                                                            • Amazon.co.uk
                                                                                                                            • Argos
                                                                                                                            • Association of British Insurers
                                                                                                                            • Barclays Bank plc
                                                                                                                            • BNP Paribas
                                                                                                                            • Comet Group Ltd
                                                                                                                            • Currys
                                                                                                                            • Dixons Retail Plc
                                                                                                                            • Domestic & General Group PLC
                                                                                                                            • Egg plc
                                                                                                                            • Financial Services Authority (The)
                                                                                                                            • GoCompare
                                                                                                                            • Home Retail Group
                                                                                                                            • Homeserve Plc
                                                                                                                            • HSBC Private Bank (UK) Limited
                                                                                                                            • Kingfisher Group
                                                                                                                            • Kingfisher UK & Ireland
                                                                                                                            • London General Insurance Co. Ltd.
                                                                                                                            • Magnet Ltd
                                                                                                                            • Maplin Electronics Ltd
                                                                                                                            • Moben
                                                                                                                            • NatWest
                                                                                                                            • Office of Fair Trading
                                                                                                                            • Pinnacle Insurance Plc
                                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                                            • Tesco Plc

                                                                                                                            Extended Warranties - UK - May 2011

                                                                                                                            £1,995.00 (Excl.Tax)